Should You Avoid Universal Insurance Holdings, Inc. (UVE)?

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the first quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of Universal Insurance Holdings, Inc. (NYSE:UVE) based on that data and determine whether they were really smart about the stock.

Is Universal Insurance Holdings, Inc. (NYSE:UVE) the right pick for your portfolio? Hedge funds were selling. The number of long hedge fund bets fell by 2 recently. Our calculations also showed that UVE isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 58 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let’s take a peek at the recent hedge fund action surrounding Universal Insurance Holdings, Inc. (NYSE:UVE).

What have hedge funds been doing with Universal Insurance Holdings, Inc. (NYSE:UVE)?

At the end of the first quarter, a total of 11 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -15% from one quarter earlier. By comparison, 13 hedge funds held shares or bullish call options in UVE a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).

More specifically, Stadium Capital Management was the largest shareholder of Universal Insurance Holdings, Inc. (NYSE:UVE), with a stake worth $10.8 million reported as of the end of September. Trailing Stadium Capital Management was Citadel Investment Group, which amassed a stake valued at $4.1 million. AQR Capital Management, Winton Capital Management, and Arrowstreet Capital were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Stadium Capital Management allocated the biggest weight to Universal Insurance Holdings, Inc. (NYSE:UVE), around 6.13% of its 13F portfolio. Winton Capital Management is also relatively very bullish on the stock, earmarking 0.1 percent of its 13F equity portfolio to UVE.

Judging by the fact that Universal Insurance Holdings, Inc. (NYSE:UVE) has experienced a decline in interest from the smart money, it’s safe to say that there is a sect of hedge funds who were dropping their full holdings last quarter. At the top of the heap, Michael Gelband’s ExodusPoint Capital dropped the largest position of the “upper crust” of funds followed by Insider Monkey, comprising close to $0.8 million in stock. Paul Tudor Jones’s fund, Tudor Investment Corp, also sold off its stock, about $0.5 million worth. These moves are important to note, as total hedge fund interest fell by 2 funds last quarter.

Let’s now review hedge fund activity in other stocks similar to Universal Insurance Holdings, Inc. (NYSE:UVE). These stocks are Virtus Investment Partners Inc (NASDAQ:VRTS), Franks International NV (NYSE:FI), New York Mortgage Trust, Inc. (NASDAQ:NYMT), and Hanger, Inc. (NYSE:HNGR). This group of stocks’ market values are similar to UVE’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 11.75 hedge funds with bullish positions and the average amount invested in these stocks was $28 million. That figure was $35 million in UVE’s case. Hanger, Inc. (NYSE:HNGR) is the most popular stock in this table. On the other hand Franks International NV (NYSE:FI) is the least popular one with only 7 bullish hedge fund positions. Universal Insurance Holdings, Inc. (NYSE:UVE) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 12.3% in 2020 through June 30th and surpassed the market by 15.5 percentage points. Unfortunately UVE wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); UVE investors were disappointed as the stock returned 0% during the second quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

Disclosure: None. This article was originally published at Insider Monkey.